If you are shopping for whole life insurance, you’re buying “for keeps,” as the expression goes. Life insurance isn’t like a pair of sneakers, a phone that you might own for a few years before upgrading. And if you’re going to have life insurance for the rest of your life, you want to choose the best whole life insurance company!
When it comes to picking a life insurance company, there are things that matter and things that really DON’T matter. We’ll break down that distinction to help you prioritize (even though you may still have a preference).
Let’s start with the important stuff!
Attributes of the Best Whole Life Insurance Companies
1. The Company Pays Dividends
Dividend-paying life insurance is usually whole life insurance from a mutual company. Some of the well-known mutual insurance companies include Guardian, MassMutual, and New York life, yet there are many of them to choose from. (MetLife is an exception… despite their demutualization they still pay a small dividend.)
Whole life insurance policies that receive dividends are also known as “participating life insurance,” or “participating policy contracts.” That simply means that the policy owners “participate” in sharing in the profits of the insurance company. You can’t do this with a stock company, because their profits go to shareholders. Therefore, mutual is generally the way to go!
Dividends are not guaranteed in your contract. This is simply because the companies cannot guarantee a profit every year. Despite this, they are guaranteed to pay you a portion of the profits when they occur, and life insurance companies have a reliable history of paying dividends. Just watch out for companies that offer whole life but don’t pay dividends! This is unusual, yet it does happen.
There is an important benefit to life insurance dividends that dividend-paying stocks don’t provide. Once dividends are paid… you’ll have a new floor for all future guaranteed cash value increases!
2. The Company Has a Solid History
When it comes to the best life insurance companies, we believe that the longevity of the company matters! If you want a product guaranteed to last for decades to come, we suggest you purchase it from a company that has been around for at least that long! Not only does this provide solid evidence that they can run and operate a successful business, it also indicates the strength of their products. (In fact, you should apply this logic to insurance products as well. Whole life insurance has a few hundred years of data to back it up, while universal life insurance does not.)
Many of us can expect to live to 100—and possibly well beyond 100. Many whole life insurance companies have been paying dividends well beyond 100 years, and we think that’s a pretty good measure. Remember, dividends are not guaranteed, although most mutual companies have paid profits in the form of dividends for many decades, and even centuries!
3. It’s a Mutual (Not Stock) Company
We work with mutual companies because they work for the best interests of their policyholders, who collectively own the company. Participating mutual life insurance companies are legally obligated to pay out their profits to policyholders in the form of dividends—a valuable benefit!
Stock companies have policyholders who are their customers, yet their objective is to make a profit for company stockholders. Your best interest as a policyholder is not necessarily the stock company’s top priority.
While most companies are either mutual or stock companies, there are also mutual holding companies (a hybrid that generally exists when a company is in the process of demutualization) and fraternal companies that operate for the benefit of their members, often part of a certain church, religion, or other groups of people.
4. It Offers the Features You Desire
The best life insurance company is the one that has what you want. Such policy features might include certain riders that enhance or expand the capabilities of your policy. Common ones that we recommend are waiver of premium and long-term care, yet there are many that can use to customize your insurance. While most companies have the same features, the fine print can vary from company to company. If you have questions about what you’ll get with a rider, be sure to check out that fine print.
People also tend to appreciate having flexibility with the payments on their PUA (paid-up additions) rider, though some companies offer more PUA flexibility than others. This is especially nice if your household has income and/or expenses that vary each year. That way, you can save more in a “green year” and save less in a “lean year.”
You might also have a preference for fixed-rate policy loans versus adjustable-rate policy loans. The contract will determine how you will be charged for interest in the future, should you decide to borrow against your policy. The fixed rate is guaranteed for the life of the policy, so if it’s relatively low (6% or less) it’s a pretty solid choice. You’ll be glad you locked in a low rate for life. On the other hand, variable rates are declared annually. They’re based on the bond rates at the time, which means there can be quite a fluctuation.
5. The Company Has a High Rating
While the financial crisis of 2008 demonstrated that rating agencies are not always reliable—especially when conflicts of interest exist—they are still an indicator of overall financial strength (or trouble). The best whole life insurance companies are rated “A” or better (such as AA, A++) by the rating agencies (Moody’s, A.M. Best, Fitch, and Standard & Poor’s).
We find that established mutual life insurance companies tend to have excellent credit ratings, so there are many good options. Checking ratings is just one step in choosing the best whole life insurance company for you.
6. Policyholders Aren’t Suing the Company
There have been consumer warnings issued by regulators about companies that provide universal life and IUL (indexed universal life). Just Google “universal life insurance lawsuits” and you’ll find pages of information about unhappy policyholders suing their companies.
Why all the lawsuits? Sometimes universal life policy owners were misled as to how the policies would perform. Policy costs and premiums may go up unexpectedly as the insured ages, even threatening the integrity of the policy. In some cases, the insured has outlived their policy and the family is trying to recoup the many thousands paid into the policy. This is just one reason it’s incredibly important to choose a product with a good history, in addition to choosing a good company.
The fact is, people don’t always know where to store their cash, especially when rates are low. They end up putting money in lesser life insurance products—or perhaps corporate or municipal bonds—that actually carry a lot of risk. We believe whole life insurance is a more attractive alternative for the safe, predictable portion of your portfolio!
Less Important Attributes of the Best Whole Life Insurance Companies
Now that we’ve covered the most important aspects to consider when looking for the best whole life insurance company, here are the ones we think are just not as important. Over the long-term we find the following differences in policies tend to “come out in the wash,” so to speak. In other words, one policy may perform slightly better for a year or two, or in a particular circumstance, but over the long haul, the difference is negligible.
7. The Current Dividend Rate
Because the dividend is such an important piece of the growth equation, many people base their whole decision on a company’s declared dividend. While you certainly can, we’d recommend not hanging your decision on this one variable. The reality is that companies declare dividends annually, and a company that declares a high dividend one year might declare a low one the next. While you can certainly compare the historical data (as some companies tend to declare dividends more conservatively, and others a bit more aggressively), don’t base it on one year alone.
The reality is that in the long run, most companies perform similarly in the dividends category over a 30+ year period. The difference can quite literally be pennies, when it comes down to it. However, many people still feel more comfortable looking at the data and choosing a company this way.
8. Direct vs. Non-Direct Recognition
“Direct vs. non-direct recognition” is a question that some of our clients have. Direct recognition policies adjust the dividends paid on a policy when there is an outstanding policy loan, non-direct recognition policies do not. Owning a direct recognition policy can affect your dividends either positively or negatively, though only by a small amount. And while there are pros and cons to either, they are fairly minor.
We agree with TheInsuranceProBlog’s conclusion: “When it comes down to it, one is not superior to the other. All this talk… is a game of smoke and mirrors used to keep your focus away from the really important stuff.”
The bottom line: direct or non-direct, you’ll be fine as long as you follow our advice in this article about choosing a quality company! We also recommend “Essential Questions to Ask BEFORE You Apply for Life Insurance.”
9. The Ratio of Premium to PUAs Allowed
In our current economic circumstances, we have seen some changes to policies. One change is that mutual companies are being more conservative about the amount of PUAs a policy owner can pay. As a result, the ratio of premium to paid-up additions has increased somewhat.
Maximizing paid-up additions can build cash value faster in the early years of a policy. However, even a policy with no paid-up additions builds cash value. It’s important to remember that premium payments also support the policy’s face value and cash value.
Sometimes people get the impression from information on the internet that only paid-up additions build cash value, yet that is not correct. And in spite of current adjustments to policies, the insured’s age remains a primary factor in how much PUA is granted. (Higher PUAs are granted to the very young, which is a great reason to insure grandchildren!)
Want to Find the Best Whole Life Insurance Company for YOU?
We can assist you with an illustration if you’d like to look at the big picture to see how your policy will grow. It’s important to look at the big picture and get your questions answered. We can also help you analyze the projected long-term gains of the policy with Truth Concepts software.
And if you would like our assistance or have questions about your finances, see what Prosperity Thinkers is all about. We are insurance brokers and therefore can represent more than one insurance company. Contact us to schedule an appointment, request an illustration, or simply ask a question via email. We’d love to help you choose the best whole life insurance company for you!